Financial stability themes are prominent, and to some degree dominate, the report of the review into the Reserve Bank of Australia. “The Government should legislate the RBA’s financial stability responsibilities in the Reserve Bank Act 1959 so that there is a clear basis for its role,” the review says. There is currently no explicit financial stability responsibility for the RBA in legislation (excluding the responsibilities of the Payments Systems Board).  “However, there is broad acceptance of the RBA’s financial stability responsibilities.  “These are set out across a range of documents, including the Statement on Conduct, RBA’s memorandums of understanding with APRA and other members of the CFR, and RBA publications, including its website and some speeches. APRA has a defined financial stability role in legislation. “It is important that there is a clear statutory basis for the RBA’s contribution to financial stability.” The statutory changes and associated changes proposed to the Statement on Conduct “should clarify that there are several ways in which the RBA is expected to promote financial stability,” the review says. These are:

setting monetary policy to contribute to price stability and full employment, both of which contribute to – and rely on – a smoothly functioning financial system; providing liquidity to institutions and markets, including as lender of last resort; collaborating with other government agencies with shared responsibilities, especially APRA; and oversight of the payments system (which is already legislated).

 The RBA and APRA should update their public memorandum of understanding so that it sets out “clear and specific commitments to cooperation in promoting financial stability, including the way APRA consults the RBA on macroprudential policy settings,” the review says. The review “also heard some criticisms of existing cooperation arrangements,” and one must assume voices inside APRA and the RBA were relevant here.  “Some stakeholders noted a general lack of clarity regarding how agencies work together, what each was responsible for and how agencies would seek to address perceived gaps in the regulatory architecture.”